When a borrower cancels a mortgage, the note holder gives it to the borrower. This means that the house is yours, free and clean. If a borrower refinances a mortgage, the new mortgage pays the original lender and a new promissory note is created, which that lender will hold until the new mortgage is paid in full. Gone are the days of entering your local bank, taking out a loan in exchange for a mortgage, and having that bank serve as the mortgage creditor and the entity to which you owe money for the life of the loan.
Today, loans are bought, sold, chopped and packaged for a variety of reasons. At any given time, your loan could involve half a dozen or more different entities, each with a completely different purpose. The entity that lent you money is the lender. Interestingly, the lender may not be the real source of the funds, but it's usually the party on whose behalf you executed the promissory note and to whom you owe (at least initially) the money.
Loans and notes are often sold to a securitized trust, which can only act through its trustee. The trust will often have a strange name that may refer to the original lender and a series of numbers. The trustee will often be a bank that does not actually have independent interests in your loan or mortgage separate from your interests as the trustee of the trust. Promissory notes are negotiable instruments, which means that if properly traded, the entity that “owns the promissory note” will have the right to enforce it.
In other words, the note holder is the party to whom you normally, but not necessarily, owe the money. The trustee of the trust is usually the holder of the note until there is a reason to transfer the promissory note (again, such as the start of foreclosure). Homeowners often think of their mortgage as an obligation to pay the money they borrowed to buy their home. But in reality, it's a promissory note that they also sign, as part of the financing process, which represents the promise to repay the loan, along with the repayment terms.
The promissory note stipulates the size of the debt, its interest rate and the late fees. In this case, the lender withholds the promissory note until the mortgage loan is repaid. Unlike the trust or mortgage deed itself, the promissory note is not recorded in the county's land records. The promissory note, a contract separate from the mortgage, is the document that creates the loan obligation.
This document contains the borrower's promise to repay the borrowed amount. If you sign a promissory note, you will be personally responsible for repaying the loan. When a loan changes hands, the promissory note is endorsed (passed on) to the new owner of the loan. In some cases, the note is endorsed blank, making it a bearer instrument under Article 3 of the Uniform Commercial Code.
Whoever holds the note has the legal authority to execute it and is entitled to execute it. For example, let's say you're not eligible for a mortgage loan with a good interest rate because your credit ratings are terrible. However, your spouse has excellent credit and easily qualifies for a loan. The lender agrees to lend to your spouse and does not include you as a borrower in the promissory note.
But because both are on the deed to the house, the lender requires both of you to sign the mortgage. Well, there is actually a clear difference between a deed and a mortgage, and in fact, there is an additional document that is often not mentioned, but which is the most important thing. Therefore, as a general rule, if someone is in the deed, they must be in the mortgage. But just because they're on the mortgage doesn't mean they're on the note.
For example, many times one spouse may have bad credit, so it's not in the promissory note (lenders sometimes say “they're not on the loan), but both spouses are in the Deed, so both spouses have to be in the mortgage. It's important to recognize the difference between a deed, a promissory note and a mortgage, because they definitely have different legal implications. A mortgage is a type of contract where a lender lends a specific amount of money to a borrower that is secured by real estate. The mortgage note is the document that the borrower signs at the end of the closing of his home.
It contains a description of the mortgage note and all the terms of the agreement between the borrower and the lender, and reflects all the terms of the mortgage. This allows the note holder to raise a lump sum of money quickly, rather than waiting for payments to accrue. In the case of recoverable mortgages, promissory notes have become a valuable tool for completing sales that would otherwise be delayed by lack of financing. The actions that require the servicing entity to consult with the holder of note B will vary depending on what the holder of note A and the holder of note B negotiated at the time they signed the co-lender agreement.
The mortgage lender is often, but certainly not always, the MERS, which is an entity created by several mortgage lenders to serve as a way to avoid having to allocate (and then record mortgage allocations) as the loan is transferred. Term Loan Note means a promissory note in the form of Schedule B-1, as it may be amended, supplemented or otherwise modified from time to time. Term Loan Promissory Notes means the borrower's notes (if any) in favor of any of the term loan lenders crediting the portion of the term loan provided by such term loan lender pursuant to Section 2.2 (a), individually or collectively, as applicable, since such term loan lender promissory notes may be amended, modified, extended, reformulated, replaced or supplemented from time to time. The mortgage gives the lender the right to sell the property through foreclosure and use the proceeds from the sale to recover your money if you don't make loan payments.
This also means that the interest rate on a corporate note is likely to provide a higher return than a bond from the same company, high risk means higher potential returns. Other investors can also make a partial purchase of the promissory note, buying the rights to a certain number of payments once again, at a discount on the real value of each payment. Neither the B-Note Holder nor the A-Note Holder can negotiate directly with the borrower or modify their debt separately. A promissory note can be advantageous when an entity cannot find a loan from a traditional lender, such as a bank.
By bypassing banks and traditional lenders, promissory note investors are taking on the risk of the banking industry without having the size of the organization to minimize that risk by distributing it among thousands of loans. In the United States, however, promissory notes are generally issued only to corporate clients and sophisticated investors. If the loan is paid in full, the lender will record a release (or satisfaction) of the mortgage or a return of the deed (used in conjunction with the trust deeds) in the county's land records. By signing a master note for federal student loans, for example, the student agrees to repay loan amounts plus interest and charges to the U.